DCIT CORPORATE CIRCLE 1(1), CHENNAI V. ABI SHOWATECH (INDIA) LTD., CHENNAI

ITA 1663/CHNY/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 1980 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 03-11-2020
• Assessment Year: 2009-2010
• Appeal Filed On: 27-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURESH PERIASAMYJCIT
• Keywords: Double taxation relief; Services rendered outside India; Permanent establishment; Non-deduction of tax; TDS
• Section: 195; 13; 22

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D B ENCH, CHENNAI . , ! . , ! ' BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER AND SHRI G.MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A.NO.1663/CHNY/2019 ( / ASSESSMENT YEAR: 2009-10) DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-I(1), CHENNAI. VS M/S. ABI SHOWATECH (INDIA) LTD. 67, CHAMIERS ROAD, CHENNAI-600 028. PAN:AABCA8160B ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. SURESH PERIASAMY,JCIT /RESPONDENT BY : MR. SAROJ KUMAR PARIDA, ADVOCATE /DATE OF HEARING : 03.11.2020 /DATE OF PRONOUNCEMENT : 04.12.2020 / O R D E R PER G.MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGA INST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)-1, CHENNAI DATED 11.03.2019 AND PERTAINS TO THE ASSES SMENT YEAR 2009-10. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUND S OF APPEAL:- 1. T HE ORDER OF THE LD. CIT(A) IS CONTRARY TO LAW, FACTS AND CIRCUMSTANCES OF THE CASE. 2.L. THE CIT(A) FAILED TO APPRECIATE THAT THE SIMIL AR DISALLOWANCE MADE BY THE AO FOR THE A.Y.2014-15 IN THE ASSESSEE'S OWN CASE WAS UPHELD BY THE CIT(A) VIDE O RDER IN ITA NO.291/CIT(A)-1/2017-18 DT.30.1L.2017. 2.2. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE RELIED UPON DECISION IN THE CASE OF M/ S. FAIZAN SHOES IS NOT 2 ITA NO.1663/CHNY/2019 APPLICABLE FOR THE INSTANT CASE IN AS MUCH AS IN TH E RELIED UPON DECISION, THE COMMISSION WAS PAID TO NON-RESID ENT COMMISSION AGENT FOR PROCURING EXPORT ORDERS FROM OVERSEAS BUYERS @ 2.5% COMMISSION, WHEREAS IN THE INSTANT CASE 10% COMMISSION WAS PAID TO M/S.BIGGLESWADE LTD., HONG KONG AND THE SERVICES RENDERED WAS RELATED TO PROMOTION OF SALES, MANAGIN G RECEIVABLES ACCOUNTS, GIVING ADVISORY REGARDING CRE DIT RATING AND CREDENTIALS OF THE BUYER WHICH WAS IN TH E NATURE OF MANAGERIAL/TECHNICAL/CONSULTANCY SERVICE AND ALS O FIT INTO THE DEFINITION OF ROYALTY AND TECHNICAL SERVICE AS PER ARTICLE 12 CLAUSE 2 AND ARTICLE 13 CLAUSE 3 OF INDI A-HONG KONG DTAA. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF COMPONENTS FOR AUTOMOBI LES AND FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-1 0 DISCLOSING TOTAL INCOME OF ` 2,18,19,518/-. THE ASSESSMENT HAS BEEN ORIGINALLY COMPLETED U/S.143(3) OF THE INCOME TAX ACTM1961 (HE REINAFTER REFERRED TO AS THE ACT) DETERMINING TOTAL INCOME OF ` 18,61,46,990/-. FOR THE RELEVANT ASSESSMENT YEAR 20 09-10, THE TRIBUNAL HAD REMITTED THE APPEAL BACK TO THE FIL E OF THE ASSESSING OFFICER TO CONSIDER THE ISSUE OF DETERMINATION OF EXPORT TURNOVER DEDUCTION U/S.10B AND DISALLOWANCE OF EXPENSES U/ S.40(A)(I) OF THE ACT AND COMMISSION PAYMENT TO NON-RESIDENT EXPORT AGENT. THE ASSESSING OFFICER IN THE SECOND ROUND OF PROCEED INGS, CONSEQUENT TO THE DIRECTIONS OF THE TRIBUNAL HAD DISALLOWED THE COMMISSION PAYMENT TO NON-RESIDENT EXPORT AGENT OF ` 3,02,34,070/- STATING THAT THE DEPARTMENT HAS CONSISTENTLY HELD THAT EXPORT COMMISSION 3 ITA NO.1663/CHNY/2019 PAID BY THE ASSESSEE TO M/S.BIGGLESWADE LTD., HO NG KONG, AS FEES FOR TECHNICAL SERVICES LIABLE FOR TDS U/S .195 OF THE ACT AND CONSEQUENTLY FOR NON-DEDUCTION OF TAX AT SOURCE, T HE AMOUNT IS NOT ALLOWABLE AS DEDUCTION U/S.40(A)(I) OF THE ACT. THE ASSESSING OFFICER WAS FURTHER OF THE OPINION THAT WHILE COMPLETING TH E ASSESSMENT CIRCULAR ISSUED BY CBDT VIDE NO.7 OF 2009 DATED 22 .10.2009 WAS TAKEN INTO COGNIZANCE AND ALSO THE DEPARTMENT HAS N OT ACCEPTED THE ORDERS OF THE TRIBUNAL ON THE ISSUE AND FURTHER APP EAL FILED BEFORE THE JURISDICTIONAL HIGH COURT IS PENDING FOR ADJUDI CATION. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE AS SESSEE PREFERRED AN APPEAL BEFORE THE LEARNED CIT(A). BEFO RE THE LEARNED CIT(A), THE ASSESSEE SUBMITTED THAT THE ASSESSING O FFICER HAS ERRED IN DISALLOWING EXPORT COMMISSION PAYMENT TO NON-RES IDENT AGENTS FOR SERVICES RENDERED OUTSIDE INDIA U/S.40(A)(I) OF TH E ACT FOR NON- DEDUCTION OF TAX AT SOURCE WITHOUT APPRECIATING THE FACT THAT COMMISSION PAID TO NON-RESIDENT AGENTS FOR SERVICES RENDERED OUTSIDE INDIA IS NOT TAXABLE IN INDIA AND CONSEQUE NTLY ASSESSEE IS NOT LIABLE TO DEDUCT TDS U/S.195 OF THE ACT . THE LEARNED CIT(A) AFTER CONSIDERING THE FACTS AND ALSO TAKEN SUPPORT FROM HIS PREDECESSOR CIT(A) ORDER FOR THE ASSESSMENT YEAR 20 10-11 DELETED 4 ITA NO.1663/CHNY/2019 THE ADDITIONS MADE BY THE ASSESSING OFFICER TOWARDS DISALLOWANCE OF EXPORT COMMISSION PAID TO NON-RESIDENT AGENTS U /S.40(A)(I) OF THE ACT ON THE GROUND THAT COMMISSION PAYMENT TO NON-RE SIDENT AGENTS FOR SERVICES RENDERED OUTSIDE INDIA IS NOT TAXABL E IN INDIA, CONSEQUENTLY ASSESSEE IS NOT REQUIRED TO DEDUCT T DS U/S.195 OF THE ACT AND HENCE, NO DISALLOWANCE COULD BE MADE U/ S.40(A)(I) OF THE ACT FOR NON-DEDUCTION OF TDS. AGGRIEVED BY THE ORDER PASSED BY THE LEARNED CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 5. THE LEARNED DR SUBMITTED THAT LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITIONS MADE TOWARDS DISALLOWANCE OF EXPORT COMMISSION PAID TO NON-RESIDENT AGENTS BY RELYING UPON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CA SE OF M/S. FAIZAN SHOES PVT.LTD (2014) 367 ITR 155 WITHOUT A PPRECIATING THE FACT THAT IN THAT CASE COMMISSION WAS PAID TO NON-R ESIDENT AGENT FOR PROCURING EXPORT ORDERS FROM OVERSEAS BUYERS, WHER EAS IN THE INSTANT CASE, COMMISSION WAS PAID TO M/S.BIGGLESWAD E LTD., HONG KONG, FOR VARIOUS SERVICES INCLUDING THE SERVICES RENDERED IN RELATION TO PROMOTION OF SALES, MANAGING RECEIVABL E ACCOUNTS, GIVING ADVISORY REGARDING CREDIT RATING AND CRED ENTIALS OF THE BUYER WHICH WAS IN THE NATURE OF MANAGERIAL/TECHNICAL/CON SULTANCY SERVICES AND ALSO FIT INTO THE DEFINITION OF ROYAL TY AND FEES FOR 5 ITA NO.1663/CHNY/2019 TECHNICAL SERVICES AS PER ARTICLE 12 CLAUSE 2 AND A RTICLE 13 CLAUSE 3 OF INDIA-HONG KONG DTAA. 6. THE LEARNED AR, ON THE OTHER HAND, SUPPORTING TH E ORDER OF THE LEARNED CIT(A) SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE CHENN AI BENCHES OF THE TRIBUNAL IN THE CASE OF M/S.TURBO ENERGY LTD. , A GROUP COMPANY OF THE ASSESSEE, WHERE THE TRIBUNAL AFTER CONSIDERING RELEVANT FACTS HAD HELD THAT EVEN AFTER AMENDMENT B Y THE FINANCE ACT, 2010 WITH EFFECT FROM 01.04.1976, EXPLANATIO N TO SECTION 9(2) OF THE ACT, THERE IS NO PROVISION TO TAX THE PAYM ENT MADE TO THE SERVICES RENDERED OUTSIDE INDIA BY FOREIGN AGENTS U/S. 9(1)(VII) OF THE ACT. THE LEARNED AR FURTHER SUBMITTED THAT THE ASSESSEE IS CONSISTENTLY MAKING PAYMENTS OF COMMISSION TO NON-R ESIDENT AGENTS RIGHT FROM ASSESSMENT YEAR 2006-07 TO ASSESSMENT YE AR 2013-14 AND THE DEPARTMENT HAS ACCEPTED THE SAID COMMISSION PAYMENTS AS DEDUCTIBLE WITHOUT DEDUCTION OF TAX AT SOURCE U/S.1 95 OF THE ACT FOR THE ASSESSMENT YEAR 2006-07 TO 2008-09 AND 2010-11. FURTHER, ALTHOUGH THE ASSESSING OFFICER HAS DISALLOWED COMMI SSION PAYMENT FOR ASSESSMENT YEAR 2012-13 AND 2013-14, BUT THE LE ARNED CIT(A) HAS ALLOWED RELIEF TO THE ASSESSEE AND THE DEPARTME NT HAS ACCEPTED THE FINDINGS OF THE CIT(A) WITHOUT ANY FURTHER APPE AL, BUT FOR THE YEAR 6 ITA NO.1663/CHNY/2019 UNDER CONSIDERATION, THE DEPARTMENT HAS CHALLENGED THE DISALLOWANCES EVEN THOUGH THE LEARNED CIT(A) HAS AL LOWED RELIEF BY FOLLOWING THE DECISION OF THE HONBLE MADRAS HIGH C OURT IN THE CASE OF FAIZAN SHOES PVT.LTD.(SUPRA). 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND THE ORDERS OF THE AUTHORITI ES BELOW. WE FIND THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN THE CASE OF M/S. TURBO ENERGY LTD. VS. DCIT FOR THE ASS ESSMENT YEAR 2007-08 TO 2009-10 IN ITA NO.351,316 & 317/MDS/2014 DATED 03.05.2017 AND BY FOLLOWING THE DECISION OF THE H ONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. FAIZAN SHOES PVT. LTD (SUPRA), HELD THAT SERVICES RENDERED BY THE FOREIGN AGENTS WAS TO CANVASS THE ASSESSEES PRODUCTS OUTSIDE INDIA AND NO MANAGERIA L OR CONSULTANCY SERVICES WERE RENDERED BY THE FOREIGN AGENTS. FURTHER, THE ENTIRE SERVICES RENDERED OUTSIDE INDIA AND TH E FOREIGN AGENTS DO NOT HAVE ANY PERMANENT ESTABLISHMENT OR BUSINESS CONNECTION IN INDIA. THE TRIBUNAL FURTHER HELD THAT NATURE OF SER VICES RENDERED BY THE FOREIGN AGENTS DO NOT FALL UNDER THE CATEGORY OF FEES FOR TECHNICAL SERVICES WHICH CAN BE TAXED UNDER SECTIO N 9(1)(VII) OF THE ACT. THE TRIBUNAL HAS ALSO TAKEN NOTE OF AMENDMENT TO EXPLANATION 7 ITA NO.1663/CHNY/2019 TO SECTION 9(2) OF THE FINANCE ACT, 2010 W.E.F. 01. 04.1976 AND HELD THAT DESPITE THE DEEMING FICTION IN SECTION 9(1)(V II) OF THE ACT TO TAX FEES FOR TECHNICAL SERVICES, BUT THE NATURE OF SER VICES RENDERED BY FOREIGN AGENTS DO NOT HAVE TERRITORIAL NEXUS TO TA X THE SAME AS ROYALTY/ FTS U/S. 9(1)(VII) OF THE ACT. THE RELEVAN T FINDINGS OF THE TRIBUNAL ARE AS UNDER:- 7.5 WE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. THE LD.AR ARGUED THAT THE SERVICES RENDERED BY THE FOREIGN AGENT WAS TO CANVASS THE ASSESSEE'S PRODUCTS OUTSID E INDIA AND NO MANAGERIAL AND CONSULTANCY SERVICES WERE REN DERED BY THE FOREIGN AGENTS. THE ENTIRE SERVICES WERE RENDER ED OUTSIDE INDIA AND THE PARTY DOES NOT HAVE ANY PERMANENT ESTABLISHMENT OR BUSINESS CONNECTION IN INDIA. THE NATURE OF SERVICES RENDERED WAS EXAMINED BY THE LD.CIT(A) AND GIVEN A FINDING THAT THE SERVICES DO NOT FALL UNDER THE CAT EGORY OF MANAGERIAL SERVICES TO BE TAXED U/S 9(1)(VII) OF IT ACT AS FTS. ON SIMILAR FACTS IN THE CASE OF M/S.BRAKES INDIA LT D., IN ITA NO.266/2012 DATED 22.03.2013, THE ITAT, CHENNAI HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE ASSESSEE H AS RELIED ON THE FOLLOWING DECISIONS ALSO: CIT V. FAIZAN SHOES (TCA NO.789 OF 2013) (MAD HC) ACIT V. FARIDA (ITA NO.359/MDS/2013) DELTA SHOES PVT. LTD. (ITA NO.909/MDS.2013) THE ENTIRE SERVICES WERE RENDERED OUTSIDE INDIA AND THE PARTY DOES NOT HAVE ANY ESTABLISHMENT OR BUSINESS CONNECT ION IN INDIA. THE LD.CIT(A) HAS ALLOWED THE ASSESSEE'S APP EAL FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT AND THE JURISDICTIONAL HIGH COURT IN THE CASE OF FAIZAN SHOES WHICH SUPPORTS THE ASSESSEE'S CASE. THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A) AND THE SAME IS UPHELD. . 7.6 EVEN OTHERWISE, EXPLANATION TO SEE. 9(2) OF IT ACT IS AMENDED BY FINANCE ACT, 2010 W.E.F. 01.04.1976. THE 8 ITA NO.1663/CHNY/2019 ASSESSMENT YEAR INVOLVED IS 2007-08 TO 2009-10 AND THERE JS NO PROVISION TO TAX THE PAYMENTS MADE TO T HE SERVICES RENDERED OUTSIDE INDIA TO THE FOREIGN AGENTS IN THE INCOME TAX UJS.9(1)(VII) PRIOR TO THE AMENDMENT. THIS VIEW IS UPHELD BY THE DECISION OF THE HON'BLE SUPREME COURT RELIED UPON B Y THE LD.AR IN THE CASE OF ISHIKAWAJIMA-HARIMA HEAVY INDU STRIES LTD VS. DIT (2007) (288 ITR 408) WHICH CLARIFIED TH AT DESPITE THE DEEMING FICTION IN SECTION 9, FOR ANY SUCH INCO ME TO BE TAXABLE IN INDIA, THERE MUST BE SUFFICIENT TERRITOR IAL NEXUS BETWEEN SUCH INCOME AND THE TERRITORY OF INDIA. IT FURTHER HELD THAT FOR ESTABLISHING SUCH TERRITORIAL NEXUS, THE S ERVICES HAVE TO BE RENDERED IN INDIA AS WELL AS UTILIZED IN INDI A. THE EXPLANATION TO SECTION 9(2) WAS INTRODUCED BY FINAN CE ACT 2010. W.E.F.1976 AND AS ON THE DATE OF ASSESSMENT T HERE WAS NO SUCH PROVISION TO TAX THE FTS RENDERED OUTSIDE I NDIA AND HENCE WE AGREE WITH THE LD.A.R THAT NO TAX IS DEDUC TIBLE U/S 195 AND CONSEQUENT DISALLOWANCE IS NOT CALLED FOR. 8. IN THIS CASE, ON PERUSAL OF THE FACTS AVAILABLE ON RECORD, WE FIND THAT THE ASSESSEE HAS MADE PAYMENT TO M/S.BIGGLESWA DE LTD., HONG KONG, A NON-RESIDENT AGENT WHO RENDERED SERVIC ES TO THE ASSESSEE OUTSIDE INDIA FOR MARKETING THE PRODUCTS O F THE ASSESSEE. FURTHER, THE ASSESSEE HAS FILED NECESSARY EVIDENCE TO PROVE THAT ALTHOUGH THE AGREEMENT BETWEEN THE PARTIES SPECIFI ES VARIOUS SERVICES BUT PAYMENT MADE FOR THE IMPUGNED ASSES SMENT YEAR IS ONLY FOR EXPORT SALES AND SUCH SERVICES ARE RENDER ED OUTSIDE INDIA. THEREFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO THE CONSISTENT VIEW TAKEN BY THE CO-ORDINATE B ENCH IN THE CASE OF M/S. TURBO ENERGY LTD. (SUPRA), WE ARE OF THE VIEW THAT THE EXPORT COMMISSION PAID TO FOREIGN AGENTS FOR RENDER ING SERVICES OUTSIDE INDIA IS NOT LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S.195 OF 9 ITA NO.1663/CHNY/2019 THE ACT AND CONSEQUENTLY, NO DISALLOWANCE COULD BE MADE U/S.40(A)(I) OF THE ACT FOR NON-DEDUCTION OF TDS. T HE LEARNED CIT(A) AFTER CONSIDERING THE RELEVANT FACTS AND ALSO BY FO LLOWING THE DECISION OF THE HONBLE HIGH COURT IN THE CASE OF F AIZAN SHOES PVT.LTD, (SUPRA) HAS RIGHTLY DELETED THE ADDITION M ADE TOWARDS DISALLOWANCE OF EXPORT COMMISSION MADE TO NON-RES IDENT AGENTS AND HENCE, WE ARE INCLINED TO UPHOLD THE ORDER LE ARNED CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH DECEMBER, 2020 SD/- SD/- ( . ) ( . ) (DUVVURU RL REDDY) ( G.M ANJUNATHA ) ' $ / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER ' /CHENNAI, ' /DATED 4 TH DECEMBER, 2020 DS )* +* /COPY TO: 1. APPELLANT 2. RESPONDENT 3. , () /CIT(A) 4. , /CIT 5. * 1 /DR 6. /GF .